This Facebook Insider Keeps Cashing Out

Bill Gates handed Microsoft’s (Nasdaq: MSFT) CEO keys to his Harvard roomie Steve Ballmer in 2001, much to the chagrin of Microsoft investors for the subsequent decade. There’s another pair of ex-Harvard roomies that are now also riding high: Facebook (Nasdaq: FB) founders Dustin Moskovitz and Mark Zuckerberg. Interestingly, Ballmer is the only one of the four that graduated, while the other three dropped out, yet he’s easily the least respected of the bunch.

Not Thiel againSurely by now, you’ve heard that famed Silicon Valley investor Peter Thiel has cashed out the vast majority of his early investment in the social network, while opting to hang on to his stake in LinkedIn (Nasdaq: LNKD) in an implicit vote of confidence that the professional flavor has a rosier future. Ever since Facebook’s IPO lockup expired, Moskovitz has also taken the opportunity to steadily cash out his holdings.

Moskovitz was Facebook’s third employee, and its first Chief Technology Officer. He left the company back in 2008 in order to found another company, Asana, which builds a web application for enterprises that focuses on collaboration and project management.

A daily paydayAs of the IPO, Moskovitz was holding 133.7 million class B shares, which would have been valued at nearly $5.1 billion at the offer price of $38. Super-voting class B shares convert one-for-one to publicly traded class A shares, and Moskovitz converted 7.5 million shares after the expiration on August 17. He has since been steadily cashing out some of these shares in increments of 150,000 shares.

Date

Acquired/Disposed

Quantity

Average price

Shares remaining

Dollar value

8/17

Acquired

7,500,000

N/A

7,500,000

N/A

8/17

Disposed

150,000

$20

7,350,000

$3 million

8/20

Disposed

150,000

$19.49

7,200,000

$2.9 million

8/21

Disposed

150,000

$19.38

7,050,000

$2.9 million

8/22

Disposed

150,000

$19.31

6,900,000

$2.9 million

8/23

Disposed

150,000

$19.51

6,750,000

$2.9 million

8/24

Disposed

150,000

$19.43

6,600,000

$2.9 million

8/27

Disposed

150,000

$19.22

6,450,000

$2.9 million

8/28

Disposed

150,000

$19.26

6,300,000

$2.9 million

8/29

Disposed

150,000

$19.19

6,150,000

$2.9 million

Source: SEC Form 4 filings. Class A shares acquired through conversion of Class B shares. Shares remaining do not include remaining Class B share holdings. Dollar value is approximated and may not include transaction costs. Shares are beneficially owned indirectly through a trust.Over the past two weeks, Moskovitz has sold a chunk every single day, and has brought in roughly $26.2 million. He still has over 6 million of these, and it would appear that he’s planning on unloading them slowly over time. Whether or not he plans to sell all 7.5 million shares that he converted remains to be seen.

Remember that he’s still hanging on to 126.2 million class B shares, currently worth about $2.4 billion, so just about all of his wealth remains tied up in the company, even if he were to sell all of the shares he converted. At $19 per share, his remaining class A holdings, as of August 29, are worth $117 million.

Whose side are you on?Moskovitz’s sales are less meaningful than Thiel’s, in part because Moskovitz is retaining the bulk of his stake. In contrast, Thiel dumped the bulk of his stake. It’s worth pointing out that Thiel is a more seasoned investor with more experience assessing a company’s prospects than Moskovitz -- Thiel also manages a hedge fund, after all. Thiel also hit it big when he co-founded and sold PayPal to eBay (Nasdaq: EBAY) , netting himself $60 million in the process, but that was a decade ago.

Co-founders also generally have more of a propensity to sell their stakes after they’ve left the company, as they no longer exert any control over the business, although emotional ties may persist. Moskovitz is probably just looking to diversify his wealth, while Thiel is perfectly happy with his monstrous return on his early investment.

Either way, Facebook’s future relies far more heavily on its ability to turn its user base into dollars and sense, and less on how its early insiders are managing their personal finances.

I’ve been keeping a close eye on Facebook myself, and there are numerous reasons I’m bullish on its long-term prospects. However, I am remaining on the sidelines until the valuation stars line up with its monetization abilities. Grab a copy of this premium report where I break down Facebook’s monetization throughout the world, and look at what it would take before I’d consider it a buy.

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